WHERE TO INVEST: Growthpoint has a V&A Waterfront valuation problem

If you look at the total universe of listed property companies on the JSE, you’ll find NEPI Rockcastle at the top of the pile with a market cap of R102-billion. But because this enormous real estate investment trust (REIT) is dual-listed on the JSE and the Euronext Amsterdam, Growthpoint is given a juicy PR loophole that allows it to claim the title of being the largest primary-listed REIT on the JSE (with a market cap of R55-billion).

Growthpoint might have to apply some creativity in its efforts to be seen as the apex predator in the property space, but there’s zero doubt that it holds the keys to the best property in South Africa: the V&A Waterfront. The debate among investors is whether access to that asset is worth dealing with the rest of the noise in the Growthpoint portfolio.

For the year ended June 2026, Growthpoint’s distributable income grew by just 4.4% to R5.2-billion. That’s not an exciting growth rate compared with the high single-digit (and sometimes double-digit) income growth being reported by a number of other JSE-listed REITs. Size is one thing, but equity investors want to see their dividends increasing over time.

Just how good is the V&A within the broader portfolio? Well, Growthpoint’s 50% share of distributable income from that asset increased by 19.0% to R964.7-million. The precinct contributed about 18.5% to group income, a percentage that will increase if the current trajectory continues. For further context, 22.1% of Growthpoint’s distributable income per share in this period was from offshore sources.

The tourism market in the Western Cape is an obvious boost to the performance at the V&A, contributing to the like-for-like growth in net property income of 10.6%. The gap between like-for-like and total growth was mainly the result of once-off development profits from residential sales at 5 Dock Road. Such was the profitability of this development that they more than offset the impact of the closure of the Table Bay Hotel during its redevelopment.

Well-heeled footfall

As a globally recognised destination, the precinct attracts high property prices and plenty of footfall. Alongside the Government Employees’ Pension Fund (GEPF) as co-owner of the V&A, Growthpoint has leaned into this opportunity by developing revenue streams that go well beyond traditional retail space. The underlying hospitality, tourism, leisure and related businesses within the broader precinct now contribute 20% of its total income, up from 16%.

This is a very helpful growth driver, but it does increase the group’s exposure to earnings driven by variable factors like tourism. To be fair, the entire precinct faces those risks anyway, as the success of the V&A Waterfront certainly isn’t being driven by the immediate catchment area of locals. There are tourists streaming through the property day in and day out, parting with hard currency in exchange for beautiful experiences in the sunshine (and the wind, for that matter).

At the other end of the country, we find metrics that are far less inspiring. For full shock value, we now shift to the office portfolio, where about 70% of Growthpoint’s South African office exposure is in Gauteng. The office vacancy rate has been stubborn to say the least (up from 18.5% to 18.6% over the past year). Although the renewal success rate has jumped from 57.5% to 78.3%, the concern is that reversions have worsened from -3.2% to -6.3%.

Digging into the office portfolio reveals an even greater divide than you might expect. Gauteng office reversions were a nasty -10.2% in this period (versus -4.4% in FY25). In stark contrast, office reversions in the Western Cape were positive 0.4%, admittedly a cooling down from the reversions of 3.9% in the prior year.

It’s no wonder that the South African asset disposals by Growthpoint have focused on the office portfolio, with the fund offloading R3-billion in office assets versus R1.3-billion in industrial and R568-million in retail assets. Although it remains committed to Gauteng and has highlighted the potential upswing that could come from a recovery in the City of Johannesburg’s operating environment, the reality is that Growthpoint’s valuation is being hamstrung by the extent of office exposure.

Hope is not a strategy

Hope isn’t a strategy, so management is doing more than just waiting around for things to improve. They have been pivoting the portfolio towards modern properties with great energy ratings. The focus on P- and A-grade properties is in line with the strategy seen at sector peers, with lower-quality office properties left for dead in the post-Covid-19 era.

There are many other assets in the portfolio, including retail and industrial/logistics plays. Growthpoint also incubates specialist portfolios in areas like healthcare and student accommodation. All this diversification may reduce risk, but it also makes it much harder to properly assess the financial performance and growth prospects of the group. And when investors are confused or frustrated by too much diversification, they tend to apply a conglomerate discount to the valuation.

The pressure on Growthpoint’s valuation isn’t helped by the modest growth, with guidance for growth in the FY27 distributable income per share of between 1% and 3%. For context, sector rival Hyprop (a retail-focused fund) has guided growth of between 7% and 9% in the next financial year. There are many other examples of listed property counters offering this kind of growth to investors.

Growthpoint’s broad market exposure can be effective when the broader economy is doing well. But with such divergence in performance across different provinces and asset classes, South African property investors have been favouring more focused assets.

Investors are only paying a price/book multiple of 0.76x for Growthpoint, but they are willing to pay 0.89x at the moment for Hyprop’s retail and Eastern European exposure. And at Spear REIT, exclusively focused on the Western Cape, investors are paying 0.98x the book value.

Spear’s market cap of R6.5-billion makes it a minnow in comparison with Growthpoint, but property is all about location, location, location. DM